US stocks rose across the three major indexes on the 4th, buoyed by weak labor market data and rising expectations of interest rate cuts. However, the August non-farm payroll report, to be released tonight at 8:30 PM Taiwan time, is seen as the final piece in the puzzle in determining whether the Federal Reserve will initiate rate cuts at its next meeting. It could also trigger another round of volatility in global asset prices, so please be aware of potential risks.
Cooling employment data emerges
Market estimates suggest US nonfarm payrolls increased by just 75,000 in August. If this materializes, it would mark the fourth consecutive month of gains below 100,000, marking the weakest job growth trend since the pandemic. Over the past six months, the US has added an average of just 81,000 jobs per month, with data for May and June revised down by a significant 258,000 jobs, highlighting a cooling job market.
noted Stephen Stanley, chief economist at Santander US Capital Markets LLC.
"Businesses are generally adopting a wait-and-see strategy due to concerns about rising demand and costs, and the labor market has almost frozen."
The Fed is at a policy crossroads
With weak employment and core personal consumption expenditures (PCE) remaining in the high 2.8% to 2.9% range, the Federal Reserve faces a difficult choice. However, Chairman Powell has previously expressed an openness to a rate cut, and Federal Reserve Governor Christopher Waller and several officials have also expressed support. Interest rate futures indicate a 99% probability of a 1 basis point rate cut at the September 16-17 meeting.
However, inflation has yet to return to the 2% target, leading to a debate within the decision-making circle over whether to "save jobs first, then control prices" or "continue to wait and see."
Volatility Sentinel after the report
If tonight's data is as weak as expected, the market script will be roughly as follows: Treasury prices rise and yields fall; US stocks rebound on the back of expectations of rate cuts, and the cryptocurrency market also receives support; but if employment unexpectedly improves, it may trigger a reverse trend.
Historical experience shows that in the first two hours after the release of the non-farm payroll data, the daily volatility of the S&P 500 and the US dollar index often exceeds 1.5 times the daily average. Investors should be prepared for instantaneous fluctuations.
